Fifty years ago, the answer to what a technology company was a simple question. IBM was a technology company and everyone else was a customer of IBM. It may have been a little exaggerated, but not by much. When asked today, what is a tech company, the answer will probably be that the company whose business model is structured around technology, to build and improve technology or make advanced contributions in the field of AI is a tech company.
In the initial years when the world of technology was not very advanced and the use of software was not popular, the applications of technology companies were widely related to hardware. The only dominant player in this technology was IBM.
IBM provided services including building, training and ongoing maintenance of the hardware, including operating systems and applications, custom business software. All kinds of industries have been customers of IBM technology. IBM has been a complete ecosystem in its own right, but after that, it became hard to manage all the hardware, software, services, etc.
IBM therefore began outsourcing its software division to Microsoft. In 1980, when software licensing was introduced, Microsoft separated the software business from the hardware business by charging every copy without selling or servicing the basic running hardware. Silicon Valley then started garnering attention because these software companies had capital requirements for the initial development process after which the costs were negligible for manufacturing an endless amount of chips. This made Venture Capitalists go for these start-ups as they could earn ‘an infinite pool of returns’ if they were successful.
The basic characteristics to define a tech company:
- Creates Ecosystem
- Has Zero Marginal Costs
- Improves over Time
- Offers infinite leverage
- Enable zero transaction costs
Source: https://stratechery.com/2019/what-is-a-tech-company/
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